Massive easing through bond and mortgage backed securities purchases causes massive distortions but does not achieve what they say they want to achieve, lower unemployment.

They believe that their buying reduces interest rates which therefore causes people to want to buy houses which then leads to new houses being built and therefore unemployment comes down.

The problem is that they are trying to repeal the Law of Supply and Demand.

This sounds good in theory but not in practice.

Certainly, lowering the price of mortgages increases the demand for mortgages. Until May, we were seeing massive amounts of refinancing of old mortgages. The pop up in interest rates has largely ended that surge in refis.

But wait, there was no surge of new mortgages for new houses! How could that be possible, Mr. Bernanke and Ms. Yellen?

The problem is that the price is too low for lenders to be interested. Lenders look at mortgage rates around 4% and know that they cannot make money over the life of that mortgage. Inflation and taxes will eat them alive. Plus, of course, they have to also cover the cost of some of those mortgages defaulting.

So mortgage lending is very very slow largely because interest rates are too low for lenders to want to make loans.

In other words, there is no supply of mortgage money at the rates that Bernanke and Yellen believe should stimulate new housing.

They need to stop this insane policy and let the market adjust. It will heal naturally.

November 23, 2013

Last week I wrote: "It looks like 1800 is going to be broken. The next up target is 1825. My short position is beginning to look ugly. As I am mentioning in the comment of the weekly chart, it may take up to the beginning of 2014 before we will see the start of a reaction. When this reaction starts I do expect a longer term down move. With that in mind I do not like to close the short position now. On the other hand I do not know how much further the index can go up. So, I must take some insurance. I opened an option on the SPX future, that will keep the loss more or less at the level we are now. I bought the future call option January 1800 at $26".

As expected 1800 is broken. The index reached the R1 pivot resistance level and a 161.8% Fibonacci target with a historical projection from previous tops. The next up target is around 1825. We are close to the upper side of the up moving pitchfork and the upper side of the volatility band. From the previous week comment, I like to repeat: " it may take up to the beginning of 2014 before we will see the start of a reaction. Whenever this reaction starts I do expect a longer term down move". I still have the short position and an insurance with the call option January 1800.

November 16, 2013

Last week I wrote: "The expectation of a further move down was there on Thursday, back to the median line of the up moving pitchfork, but not yet confirming a wave 2 correction level. However the expert turned black and we may have created a double top with the wave 3.7. Friday this down move was completely recovered. Indicators are moving down. I still have the short position. And once more I have to repeat: I do expect a further move down the coming week(s). Close any long positions when the down reaction is confirmed starting a wave 2. Because this reaction has a good chance to become a long term down move. I would consider a move below 1740-1730 as the start of a longer term move down".

It looks like 1800 is going to be broken. The next up target is 1825. My short position is beginning to look ugly. As I am mentioning in the comment of the weekly chart, it may take up to the beginning of 2014 before we will see the start of a reaction. When this reaction starts I do expect a longer term down move. With that in mind I do not like to close the short position now. On the other hand I do not know how much further the index can go up. So, I must take some insurance. I opened an option on the SPX future, that will keep the loss more or less at the level we are now. I bought the future call option January 1800 at $26.

November 9, 2013

Last week I wrote:
"We most probably started a wave 2 correction
down after the top of wave 3.7 on Wednesday. The index turns against the
resistance of the upper band of the volatility channel. Indicators are
turning down from overbought levels. Once more the move over the week
was small enough to keep our short position. I do expect a further move
down the coming week. I repeat my suggestion of past week: close any
long positions when the down reaction is confirmed. Because this
reaction has a good chance to become a long term down move. I would
consider a move below 1740-1730 as the start of a further move down".

The expectation of a further move down was there on Thursday, back to
the median line of the up moving pitchfork, but not yet confirming a
wave 2 correction level. However the expert turned black and we may have
created a double top with the wave 3.7. Friday this down move was
completely recovered. Indicators are moving down. I still have the short
position. And once more I have to repeat: I do expect a further move
down the coming week(s). Close any long positions when the down reaction
is confirmed starting a wave 2. Because this reaction has a good chance
to become a long term down move. I would consider a move below
1740-1730 as the start of a longer term move down.

I just returned from a trip to South Africa again. I was teaching a trading class there to over 350 people. This is a huge size for this class as we normally do much smaller classes in the US.

The point is that this shows how keen South Africans are to learn about trading.

Apparently, there are only a few people who teach investing in South Africa and they are not very good.

I was very impressed with the level of enthusiasm they had for investing. They seemed very hungry for the info!

I’m looking forward to going back there in January to teach two more classes!

We’re really making a push there as the market is very keen for our material. We’ve hired a South African and are setting up an office there. I think we are early to the market there as incomes are still low but I think that they are growing rapidly and I’d rather be too early than too late.

November 2, 2013

Last week I wrote:
"Last week I wrote "The index moved above the the
resistance around 1750. The move is small enough to keep our short
position open. Maybe now we are looking at a small double top for the
start of the down move. The index reached the upper side of the
volatility band. Indicators are overbought. I am not yet giving up our
short position. The index is far away from all averages. The question
is how much longer before a reaction will start? Personally I suggest to
close any long positions at the start of a down reaction. Because this
reaction has a good chance to become a long term down move. Do not wait
too long hoping that the up move will continue! I would consider a move
below 1730 as the start of a further move down. If this is not yet
happening the coming week(s), you should of course hold on to your long
positions".

We most probably started a wave 2 correction down after the top of wave
3.7 on Wednesday. The index turns against the resistance of the upper
band of the volatility channel. Indicators are turning down from
overbought levels. Once more the move over the week was small enough to
keep our short position. I do expect a further move down the coming
week. I repeat my suggestion of past week: close any long positions when
the down reaction is confirmed. Because this reaction has a good chance
to become a long term down move. I would consider a move below
1740-1730 as the start of a further move down.